Coach and Swap Shop settle knockoffs lawsuit for $5.5 million

After just two days of testimony in a trial about designer knockoffs, Coach Inc. and the Swap Shop settled their dispute Thursday.

A copy of the agreement, obtained by the Sun Sentinel, shows that Swap Shop Inc. agreed to pay $5.5 million to Coach by Dec. 27 to dismiss the lawsuit.

But both sides declined to comment on the full terms of the settlement.

Neither side admitted any wrongdoing or liability, but under the agreement, Coach can send inspectors to look for counterfeit products at the flea market at any time and Swap Shop representatives will have 30 days to fix the problem and report back to Coach.

Swap Shop owner Preston Henn and Coach executive Nancy Axilrod each claimed it was a win for them.

"I want to get the hell out of here," Henn said, with a smile, outside the courtroom when he was asked why the case had settled. "I'm glad to be out of there, I've got work to do. … It's over and the Swap Shop is going to be open today and tomorrow — just like every other day of the year."

Will customers still be able to buy fake designer Coach purses, sunglasses and wallets for a few bucks at the massive flea market on West Sunrise Boulevard?

"I hope not," Henn said.

The Coach lawsuit targeted Henn, his wife Betty and the Swap Shop, alleging they willfully turned a blind eye to vendors illegally selling counterfeit Coach products on their property.

If the trial had gone on and jurors had sided with Coach, it could have cost Henn a lot more than $5.5 million.

Experts say that one phony designer purse can bear as many as four or five trademark violations — such as the Coach name, the highly recognized trademark C, the name label inside the purse, the hang tag, the coach and horses logo, and more.

By law, jurors could have awarded damages of up to $2 million per proven Coach trademark violation.

Because there was no official verdict in the case, it does not set any legal precedent for future lawsuits. But Miami attorneys Steven Peretz and Michael Chesal, who are experts on trademark law but were not involved in the Coach case, said they thought the case was a win for Coach.

"This gives Coach and other luxury brands another arrow in their quiver in trying to enforce their branding and trademark rights against flea market operators and shopping malls," Peretz said.

Though Henn never personally sold any counterfeit items, the settlement holds him to a similar level of liability that an actual counterfeiter would face, the experts said. And they said other flea market owners will have to consider the possible financial liability they could face if vendors sell fake designer items on their property.

Because damages can run anywhere from $1,000 to $2 million per infringement, it's impossible for defendants to predict how much it could cost them to fight such litigation, Peretz and Chesal said.

"It's like running a red light and not knowing if the fine could be $100 or $10,000," Peretz said.

Last year, a federal jury in Tennessee awarded more than $5 million to Coach in a similar lawsuit against the owner of The Southwest Flea Market after finding him liable for vendor sales of fakes at his business.

Coach executives and their attorneys, George Mahfood and David Rosemberg, declined to comment on specifics of the settlement but said they felt it was an appropriate end to the litigation.

"We think it's a very important case for the [designer goods] industry as a whole," Coach vice president Axilrod said. "We think this case will provide a general deterrent to flea markets across the country that have been selling knockoffs."

Though Henn and his attorneys, Bruce Rogow and Steven Osber, also wouldn't discuss many details of the agreement, Henn said he will hire an expert to help him and his staff identify designer ripoffs being sold by vendors who rent space at his 88-acre property, east of State Road 7 on Sunrise Boulevard.

"We're going to look closer at the items that are being sold. … If we catch vendors selling that stuff, they're going to be thrown out and they can't come back," Henn said.

Rogow said the two sides had been negotiating since the lawsuit was filed early last year in federal court in Fort Lauderdale.

"Like every case, it's better to take it into your own hands rather than leave it to the vagaries of the [courts] system," Rogow said. "It's good to resolve disputes."

The lawsuit against the Swap Shop was unusual because it actually went to trial — most such civil actions are settled and dismissed long before the case goes to court. In this case, a jury was selected on Monday, both sides made opening statements on Tuesday and two witnesses testified for the plaintiff's side on Tuesday and Wednesday before the settlement was reached.

The jurors — four women and four men — who would have decided the case, declined to comment as they left the courthouse.

U.S. District Judge William Dimitrouleas agreed to Coach's request to dismiss the lawsuit, but he retained the legal authority to enforce the terms of the settlement.

Though Henn is a multimillionaire, he positioned himself as the relatively little guy in the equation, arguing that Coach was "bullying" him and his "local outfit." His defense argued that it is just as impossible for him to keep fake designer products out of his flea market as it is for Coach to keep counterfeit items out of the U.S.

Like many other luxury goods companies, Coach has taken a very aggressive stance against counterfeiters in recent years and has also worked to educate consumers about why they might not want to buy phony designer products.

That campaign has included working with foreign officials to try to stem the manufacture of counterfeits; working with federal and local law enforcement agencies to try to stop counterfeit items from being imported, distributed and sold; and also filing civil lawsuits against businesses the company said provide a "safe haven" for vendors to illegally sell the phony products.

Coach and other designer brands hire private investigators to find low level dealers who sell the fakes and the company then cooperates with law enforcement to try to prosecute them, usually on state charges.

Axilrod said the litigation against flea market landlords marks "a shift in how brands are tackling the problem of counterfeiting."

In court, she testified that counterfeiting is a major problem that affects all designer goods companies, cutting into their profits and potentially hurting U.S. jobs. The companies spend a lot of money creating artistic designs, advertising and protecting their brands, she said.

Counterfeiters steal the designers' creations and ride the brands' coat-tails to make money that often goes to organized crime groups in the U.S., Asia and Russia, federal law enforcement authorities say.